New Commission to Study TIF Districts in Marion County — Should Monroe County Do the Same?

Yesterday, the Indianapolis City-County Council voted to create a commission to study TIF districts and their impact on other local units. Today’s Indianapolis Star reports that:

On Monday, the council also voted 27-0 to create a commission to examine the city’s use of dozens of special funds intended to support economic development in certain areas.

Called the Tax Increment Financing Study Commission, the panel is charged with issuing preliminary recommendations by April 30 and a final report by June 30.

Critics say overuse of TIF districts diverts too much tax money from schools, libraries and other government units.

Ballard has expressed concern that the commission’s work could sap city officials’ time and delay council action on pending TIF-related proposals.

TIF (Tax Increment Financing) districts are special districts in which a bond is taken out to upgrade the infrastructure (roads, sewers, trails, etc.) within the district, with the idea of making that district more desirable for economic development. Any property taxes from the increased value (the “increment”) resulting from that infrastructure (i.e. new businesses, housing) are diverted from the surrounding taxing units and placed in a special fund where they are used to pay back the bond used to fund the infrastructure. The funds can also be used for other projects that add to the value of the TIF district.

Monroe County has three TIF districts: the Westside Economic Development Area (sometimes called the Richland TIF), the Bloomington Township State Road 46 TIF District (also sometimes called North Park or Criderville), and the Fullerton Pike Economic Development Area. The City of Bloomington has six: Adam’s Crossing, Tapp Road, Thomson/Walnut/Winslow, Downtown, N. Kinser Pike/Prow Road, and Whitehall/West Third.

TIF districts, and the property taxes collected in them are under the control of the Redevelopment Commission (Monroe County and the City of Bloomington each have a Redevelopment Commission). Theoretically, after the bond obligations are met (i.e. the payments are made), excess funds collected by the TIF district can go back to the surrounding units that would have collected the taxes had there been no TIF district. The Redevelopment Commission is required by law to provide written notice to the local government each year for each TIF as to whether there is any excess valuation in the TIF district that isn’t needed, and can therefore be sent back to other local units of government. As a matter of practice, it probably isn’t much of a surprise that inevitably the Redevelopment Commissions can’t spare a dime from the TIF funds, and that all revenues are needed for the TIF.

TIF can be a very effective technique for economic development, as it is essentially “self-financing”, and doesn’t require any commitment of general funds. However, there are also a couple of legitimate criticisms of TIF financing.

1. The purpose of TIF districts is to spur development at a higher level than would be supported by the existing infrastructure of an area. The concept is that any additional valuation from new development is a result of the new TIF-funded infrastructure, and would not have occurred otherwise. Therefore, the surrounding governments (cities, townships, county, library, schools) aren’t actually losing anything that they otherwise would have had. However, in some areas, governments have been accused of creating TIF districts in areas that were already going to see significant development — thereby creating an even wealthier TIF, but diverting taxes that otherwise would have gone to local governments. I don’t think this has occurred in Monroe County — but it probably has in other areas, and local governments and residents should be vigilant that it doesn’t happen.

2. The new development in TIF districts can also create additional demands on the services provided by local governments, while denying those local governments any additional property taxes to meet the demands. For example, if a new subdivision goes into a TIF district, the residents may require additional police services –but the surrounding city or county would not receive additional revenue to provide those services. A new business may increase the need for fire protection, without providing the local (city, township, or other) fire department with additional revenues. This is a complex issue, and clearly the additional demands on units of government differ according to the type of development: a new factory requires little additional policing, and no additional demand on the library or schools but may need more highway maintenance and fire protection; a retail store requires additional policing; a subdivision may not create as much additional road maintenance burden, but may put additional demands on the schools and libraries, etc.

It was these sorts of issues that the Indianapolis CIty-County Council is trying to sort out in creating its commission. Although I don’t think the problem is as great in Monroe County, I also don’t think most residents — or even most government officials — really have any idea of the economic impact, both positive and negative, of their TIF districts. There are important questions out there: are TIF districts effective in creating the kinds of economic development that residents want (or maybe economic development that residents DON’T want)? What are the impacts of this new TIF-funded development on units of local government?  TIF financing and the decisions made by Redevelopment Commissions largely operate under the radar (not through any intentional lack of transparency — just because the media doesn’t seem to pay attention).

Monroe County ought to seriously consider creating a similar commission to answer these important questions.

The original Indianapolis Star article can be found here.

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